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House prices in England and Wales look set to end the year up 8.5 per cent and by 5.5 per cent in 2015, Hamptons International announced today. In its updated forecast, the leading residential agent warned that the pace of growth is already beginning to soften as sentiment has weakened, affordability constraints start to bite and both buyers and sellers’ expectations of future price growth moderate. In addition the approaching general election is adding to caution in some sectors of the market and this, combined with rising interest rates is likely to mean weaker price growth throughout 2015.

■ Average prices in England and Wales are expected to rise by 8.5 per cent in 2014 and 5.5 per cent in 2015.■ There is still a clear divide between the South of England and elsewhere in the country with price growth expected to remain more subdued in the North and Midlands.■ 2015 should see a continuing slow down in price growth across the country as interest rates rise, expectations of future price gains adjust and affordability constraints bite.■ Prices in Greater London are forecast to rise by 15.5 per cent in 2014 and 3 per cent in 2015 while in the South they are expected to grow 8 per cent this year and 6.5 per cent next year.

Updated Hamptons International House Price Forecasts

England & Wales

South of England

Greater London

Central London*

Prime Central London**

2013

3.5

3.5

9.6

12.5

10

2014

8

8

15.5

18

10

6

7

7

8

3

2015

5.5

6.5

3

7

3

5.5

6

6

7.5

2.5

Source: Hamptons International Research based on HMLR data

Figures in italics refer to Hamptons International forecasts published in autumn 2013

Commenting on the figures Fionnuala Earley Director of Residential Research at Hamptons International said:

“The rate of house price growth so far in 2014 has been a little higher than expected. Prices have been driven largely by London and the South East, but a change in sentiment over the rate of future price growth has affected the whole of the country and we expect that to result in a moderation in house price growth next year.

“Despite a strengthening economy, there is now evidence of a change in sentiment across the country brought about by increasingly strong messages from the Bank of England culminating in the implementation of more stringent affordability regulations (including the introduction of the Mortgage Market Review). In addition a recognition that interest rates will begin to rise before too long has led both buyers and sellers to moderate their expectations of future price growth. This is at a time when the financial position of many households is still stretched as real wages have been falling for five years.

Transaction levels“The overall message for transactions is that the pace of increase seen earlier in the recovery is unlikely to continue. However there are some competing issues. As house price expectations moderate, the incentive to buy as quickly diminishes, reducing the pace of growth in demand. However, for those already in the market who have been waiting for a peak in prices, there is now a greater incentive to sell. This should lead to an increase in stocks of existing property for sale which in turn should help boost liquidity and the level of activity. That switch has already happened in London where stock levels are improving as many choose to cash in and move to commutable areas outside the capital.”

House price forecasts are for England and Wales and are based on HMLR indices

*Prime Central London is defined as the London boroughs of Kensington & Chelsea and Westminster**Central London is defined as the London boroughs of Camden, Hackney, Hammersmith & Fulham, Islington, Lambeth, Southwark, Tower Hamlets (Canary Wharf) and Wandsworth.